In this gloomy housing environment and news of subprime implosion it is hard to envision when the housing market will turn around. Investors in this sector are fearful and most issues have seen significant value evaporate. Isn’t this the proverbial ‘blood in the streets’?
When the sector does turn around, who will benefit the most? This is hard to predict. If you consider the home builders, it is likely that there will be some restructuring in the industry, weak players would have disappeared, the strongest may still be around, but in what form?
Then, is it wise to consider home builders as investments today? Possibly, but that would be speculation
But the housing supply chain is not only home builders. Consider this: by the time the new home construction numbers start reversing to the upside, the home builders will be looking at improving revenues in the future. However, the supply chain gets activated much earlier. So building and lumber supply companies would have already started seeing an uptick in the business
One company to consider is Louisiana-Pacific (LPX) based in Nashville TN. The company provides lumber/wood products for the housing markets. The stock has suffered with the other stocks in the industry but the company itself is strong enough to survive and come out of the slump bruised but not battered. With a Market Capitalization of 1.74B (as of Oct 31, 2007), the company has 902 million in cash on the books with about 700 million in debt. The company current trades on a Price to Book ratio of 0.9
The company also pays a healthy dividend yielding around 3.9%. I would consider this a just payment for waiting for the rebound
Disclosure: The author is long in this stock
Arohan
Category: BAC, CFC, Investing, LPX, WM
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